March 20, 2017 - Fintech, Litigation

Court Finds CFPB Case Against Payment Processor Lacking

A federal district court in North Dakota on March 17, 2017, dismissed a complaint against the payment processing company Intercept Corporation and its senior executives, holding that the evidence provided by the Consumer Financial Protection Bureau (CFPB) did not show any signs of Intercept’s malpractice as that term is defined under the Dodd-Frank Consumer Financial Protection Act (CFPA).

The CFPB’s complaint, the district court held, relied on conclusory statements that lacked factual support. The court cited as an example of such conclusory statements the CFPB’s allegation that Intercept ignored “red flags” tending to show that Intercept was processing data for merchants engaged in fraud. The CFPB’s complaint made this allegation, the district court explained, without “sufficiently identif[ying] particular clients whose actions provided ‘red flags’ to Intercept or how Intercept’s failure to act upon those ‘red flags’ caused harm or was likely to cause harm to any identified consumer or group of consumers.”

In one of the few opinions addressing the purview of the CFPB’s authority under the CFPA, the court further held that despite the fact that Intercept acts as an agent of the merchant-customer, but not as an agent of the consumer whose account is being debited, “Intercept is a ‘covered person’ and a ‘service provider’ under the CFPA. [Its principal owners] Smith and Dresser are ‘related persons’ under the CFPA because of their status as officers of Intercept.”

Read the full Client Alert.